When considering Ancient Rome, we usually conjure up images like grandiose temples of white marble and soldiers with rectangular shields, but the Roman financial system was, like many other aspects of their society, ahead of its time in terms of complexity, ingenuity, and efficiency: so much so, in fact, that it resembled our modern financial system in many respects. Therefore, it should not be of tremendous surprise that they, too, experienced a major financial crisis.
As was the case with our own financial crisis of 2008, the Roman crisis had several long-term causes that were mostly ignored, in addition to short-term causes that directly brought about the crisis. To understand the origins of the crisis, however, we must first briefly examine the Roman economy. In return for security and other governmental services, the conquered provinces of the Roman Empire paid taxes, or tribute, to the government of the city of Rome. The government would, in turn, pay the citizens of Rome for construction, arms, and wages. As such, tribute and booty money from elsewhere in the Empire did not benefit the citizens of Rome unless it was expended by the government. This was understood by Emperor Augustus, who, according to Roman historian Suetonius, ‘by bringing the royal treasures to Rome in his Alexandrian triumph he made money so abundant, that the rate of interest fell, and the value of real estate rose greatly’. In fact, he was so generous that he lowered interest rates in Italy from 12% to 4% during the later years of his rule, which does not appear to be insensible, since many healthy economies today operate on base rates lower than 1%.
However, these rates were perhaps too generous for that time, as it forced private lenders like senators to seek more profitable business elsewhere in the empire. As a result, the amount of money and, crucially, available credit, in Rome had been declining steadily for 40 years by the onset of the crisis.
Additionally, when Emperor Tiberius came to power in AD 14, he reduced government expenditure dramatically: the amount of employment that Tiberius’ government provided through infrastructure construction was five times lower than that of his predecessor. This precipitous drop in government expenditure set the negative multiplier effect in motion and, bearing in mind the dependence of Rome’s money supply on the government, exacerbated the issue of a lack of credit substantially.
However, there was a key event that occurred in AD 33 itself which directly brought about the crisis. In that year, Emperor Tiberius decided to reinstate a law, which stipulated that creditors had to invest a certain portion of their capital into Italian land. After discovering that all 600 senators were in violation of this law, the emperor allowed 18 months for creditors to take measures so that they would be in compliance with the law. In order for these creditors to fulfil the quota, however, they needed to recall a large proportion of their loans. The debtors therefore tried to sell their land on the property market, but with so many sellers all simultaneously flooding the market, land prices were depressed significantly. This led the creditors to hold on to their money, since they reasoned that it would be more profitable for them to wait for land prices to continue falling before they invested.
Unfortunately, the deadline, after 18 months, coincided with a series of unpredictable events that further weakened the Roman financial system. Seuthes and Son, an important firm, happened to lose three richly laden ships in the Red Sea while Malchus and Co. suddenly became bankrupt due to a workers’ strike. These two firms therefore defaulted on their payments to the Roman banking house of Quintus Maximus and Lucious Vibo. Shortly thereafter, a run commenced on their bank and not only spread to many other prominent ones in Corinth, Carthage, Lyons, and Byzantium, but also caused them to fail. Ultimately, this resulted in the closure of several of the largest Roman banks situated on the Via Sacra, the Wall Street of Ancient Rome.
The confluence of all the aforementioned events led to the climax of the crisis: both land values continued to plummet, and the shortage of credit drove up interest rates to exorbitant levels. The Roman historian Tacitus presents a vivid account of the impact: ‘Hence followed a scarcity of money, a great shock being given to all credit…many were utterly ruined’.
Eventually, the crisis was solved by measures that appear to be reasonably similar to those employed in the wake of the 2008 financial crisis. Tiberius decreed that, in addition to the recently reinstituted law being revoked, 100 million sesterces (around $2 billion in today’s money) were to be distributed to reliable banks to be loaned out. No interest was to be collected from the subsequent loans for three years and security was to be offered at double value in real property, which both enabled debtors to avoid selling land at low prices and ensured that a lack of liquidity would not occur, which is similar to the effect of the Troubled Asset Relief Program that ran from 2008 to 2013. Rather quickly, economic stability was restored and hence private lenders soon re-emerged too, ending the crisis.